#193 - Ex Machina

Knowledge is knowing a tomato is a fruit. Wisdom is knowing not to put it in a fruit salad.”

”The insurance industry, however, appears more vulnerable, given, as noted, PE sponsors have been acquiring insurance companies and using their investment books as dumping grounds for their toxic waste. Even unaligned insurance companies though have often been as guilty as pension funds and endowments in “reaching for yield” and over-allocating to alts in an effort to compensate for lower interest rates – particularly during the 2010s. Insurers are leveraged and regulated institutions, and in a bust scenario, I would not be surprised if at least one meaningful insurer needs to be recapitalized as a result of large, unanticipated losses in PE/PC and other structured credit products.” - Link

The great demographic “handoff"

I’ve been following two simultaneous macro trends that seem to have a high possibility of merging in the coming decades. The first is the massive decline in birth rates across virtually every developed economy worldwide. The second is the burgeoning use of AI to power, train, and animate robots that are actually helpful in doing things for the average human.

The question I’m asking myself is this: what does the world look like when the population stagnates, then ages, then the demographic pyramid inverts? I.e. when there are more people to take care of than caretakers available (from a medical, tax base, labor base, production base standpoint, etc.). More and more, I am starting to believe the future will be shaped less by human labor and more by artificial labor (robotics). A global labor scarcity driven by declining birth rates will accelerate and render the rise of the robots inevitable. I call this the great demographic handoff.

My thesis is that human effort will increasingly shift toward more creative roles, while machines handle all the chores of growth. In the short term, it could be very painful, particularly for highly trained white collar professionals who have spent their whole career training in their field, only to be bested by an artificial superintelligence overnight. In the long run, those professionals will reallocate their intellect to less specialized niches and higher level creative roles because that is all that will be left for humans to do. 

So, if these two super tsunamis can be seen from afar, what does it mean for an investor? To start, I believe the sheer scale of this replacement necessitates massive infrastructure investment in three core pillars. The billions of new robotic laborers cannot function without an immense, high-speed, and intelligent support system. I can imagine three core investment opportunities arising from this dependency: more electrons, more chips, and better connectivity. 

ELECTRONS: Every mobile bot, charging station, and data center requires dense, reliable power. The existing electrical grid and battery technology must be entirely re-architected to support a perpetually "on" machine workforce. This will include grid modernization (smart grid technology, advanced transformers), utility-scale storage, and more advanced battery chemistries (high-density, long-life lithium-ion and solid-state solutions), not to mention a MASSIVE amount of compute for both training and inference. This leads me to the next pillar.

CHIPS: For a robot to navigate a warehouse or assist an elderly person, it must make real-time decisions without waiting for a cloud server’s response. Increasingly, just like Tesla’s self-driving car systems, real-time processing will happen on the device, i.e. "edge" compute. This will require highly efficient, low-power chips (ASICs, specialized NPUs, and efficient GPUs) optimized for autonomous action and actuating robotic members, and further development of LIDAR/3D Vision Systems for robotic perception. 

CONNECTIVITY: As robots operate both independently and also in coordinated fleets (autonomous vehicles, synchronized service bots, manufacturing and production lines), they require latency-free communication between each other and their central management systems. This will require next generation connectivity devices and systems including post-5G research and infrastructure, advanced RF components, and network virtualization solutions built to handle massive device density and ultra-low latency requirements that exceed today's 5G capabilities.

These three pillars represent thematic categories where I will be spending a lot more time learning, reading, and looking for potential investment ideas in the public markets. As a real estate investor, I also think that these twin themes (demographics and robotics) will lead to major changes in how and where people live, work, and play. I will cover the possible effects on real estate markets in the near future. 

Wrapping up, my thesis is simple. The demographic decline is a near certainty without some external shock and a massive catalyst for political, economic, and financial changes ahead. Robotic labor is the inevitable solution. Investing in the leading companies providing the underlying power, processing, and connectivity infrastructure will be the most direct path to capturing the economic value created by this generational handoff. 

Investor’s Corner

6 Non-Tech Companies with Exceptional Long-Term Potential - Link

Interesting stocks near 52 week low - Link

10 high conviction ideas from Q3 investor letters - Link

China property crisis alert: Vanke, once the largest real-estate developer in the middling kingdom, has seen its USD bonds plunge 60% this week, falling to record lows - Link

Coatue’s public markets outlook - Link

Praetorian Capital - 3Q letter to investors - on the AI Bubble - Link

How private equity is dumping their losers into insurance portfolios and policy holders - Link

Technology Corner

The handoff to bots - Link

The Thinking Game - full documentary on DeepMind - Link

LLMs are the new disk drives: commodity infrastructure you hot-swap for whoever’s cheapest + best - Link

This is the AI revolution in a nutshell: Only ~10% of the committed data center build outs are actually underway - Link

$ADBE starting to look cheap and interesting - Link

Open source models lag state of the art models by only 3 months on average - Link

Elon Musk: A Different Conversation w/ Nikhil Kamath - Link

Politics, Philosophy, Theology Corner

Christian Ownership Maximalism - Link

Birth Rate Collapse & Economic Utility of a Birth - Link

Global Depression Is Coming Sooner Than Expected || Peter Zeihan - Link

The paradox of choosing imperialism vs. neutrality as a nation - Link

European civilization could disappear within the next 20 years if the continent fails to overcome its political divisions and reform its migration and demographic policies. Link

Understanding Israel’s high birth rate - Link

Are the Catholic and Orthodox church headed to reunification? - Link

In his Summa Theologiae, St Thomas Aquinas laid out one of the most charitable yet practical arguments concerning immigration that effectively shaped the West for almost 1,000 years. Link